We construct a time-varying factor model of hedge fund returns that accounts for market risk, leverage, illiquidity and tail events. We also adjust for database biases arising from voluntary self-reporting. Using a constant beta model, we find no evidence of excess returns for the average hedge...

This note, prepared ahead of the G20 Summit (November 15), builds upon the points laid out in the Managing Director’s letter to the Heads of State and Government (November 9). It lays out two tasks ahead for policy makers. Policies for now should cover:(i)implementing and coordinating...

We derive a nonparametric test for constant (continuous) beta over a fixed interval of time. Continuous beta is defined as the ratio of the continuous covariation between an asset and observable risk factor (e.g., the market return) and the continuous variation of the latter. Our test is based...

We introduce a methodology which deals with possibly integrated variables in the specification of the betas of conditional asset pricing models. In such a case, any model which is directly derived by a polynomial approximation of the functional form of the conditional beta will inherit a...

Suppose a fund manager uses predictors in changing port-folio allocations over time. How does predictability translate into portfolio decisions? To answer this question we derive a new model within the Bayesian framework, where managers are assumed to modulate the systematic risk in part by...

This paper analyses the evolution of systematic risk of banking industries in eight advanced countries using weekly data from 1990 to 2012. The estimation of time-varying betas is done by means of a Bayesian state space model with stochastic volatility, whose results are contrasted with those of...

This study looks at the time-varying nature of systematic risk in the Greater China equity markets. The Shanghai and Shenzhen markets both have a low average systematic risk when measured against the world market. The short outbursts in systematic risk for these two markets seem to be directly...

This paper examines the applicability of CAPM in explaining the risk-return relation in the Malaysian stock market for the period of January 1995 to December 2006. The test, using linear regression method, was carried out on four models: the standard CAPM model with constant beta (Model I), the...

What explains the cross section of expected returns for the 25 size/value Fama-French portfolios? It is found that modelling time-varying betas is important to explain the cross-section of expected returns, as well as to comply with the time series restriction on Jensen-alpha. Support for a...

This paper compares the performance of three different time-varying betas that have never previously been compared: the rolling OLS estimator, a nonparametric estimator and an estimator based on GARCH models. The study is conducted using returns from the Mexican stock market grouped into six...